S&P Says Buy P.F. Chang's

P.F. Chang's (PFCB ): Reiterates 5 STARS (buy)

Analyst: Marcos Kaminis

The company's bistro operations -- it owns and operates 65 full-service Chinese restaurants -- exceeded forecasts. Revenues rose 30% in the fourth quarter, beating P.F. Chang's forecast for 29% growth. Bistro same-store sales rose 5.4%, entirely on increased traffic. P.F. Chang's now expects to earn 25 cents a share in the fourth quarter, exceeding its prior guidance and S&P's estimate by a penny.

At 37 times S&P's $1.04 earnings per share estimate for 2003, S&P views P.F. Chang's as appropriately valued to benefit from the 30% growth in earnings per share seen in 2003. Based on S&P's discounted cash flow valuation model and the company's execution track record, S&P continues to recommend the purchase of this growth story.

Cheesecake Factory (CAKE ): Downgrades to 3 STARS (hold) from 4 STARS (accumulate)

Analyst: Dennis Milton

Shares have rebounded 50% from their September lows, and are now at 32 times S&P's 2003 earnings per share estimate of $1.14. Cheesecake Factory has excellent growth prospects and a conservatively managed balance sheet with no debt. S&P's cash flow model, which assumes high but declining revenue growth over the next decade, values shares at $42. However, at current price levels, S&P doesn't think shares will outperform the casual-dining industry mean. S&P also is wary that stock option grants may significantly dilute future earnings.

United Rentals (URI ): Upgrades to 3 STARS (hold) from 2 STARS (avoid)

Analyst: Marcos Kaminis

United Rentals is up 13%, likely benefiting from Thursday's report that domestic manufacturing activity grew in December. This news was contrary to part of S&P's basis for avoidance of the shares. United Rentals is highly leveraged to the health of the economy. With its price-earnings valuation at just 11 times S&P's $1.13 earnings per share estimate for 2002, the company should have near-term support.

S&P's enthusiasm remains restrained however, because of concerns about United Rental's heavy debt load and its ability to generate cash through equipment sales should the economy stall.

JP Morgan Chase (JPM ): Maintains 2 STARS (avoid)

Analyst: Stephen Biggar

JP Morgan announced it has reached a tentative settlement with insurers that had guaranteed pre-paid commodity transactions with Enron. Insurers will pay about 60% of the written amount of surety bonds. in commenting on the settlement, the company says it plans to establish a $600 million aftertax reserve for other litigation and regulatory matters, offsetting expected insurance proceeds. JP Morgan notes that fourth quarter revenues are running a bit higher than expected on some rebound in trading volumes, but costs also are higher on severance-related items. The company says it is comfortable with the Street's consensus fourth quarter earnings per share estimate of 36 cents.

Although the news is a favorable development, it does not change S&P's assessment of weak current operating fundamentals that include dismal capital markets operations and deteriorated credit quality. S&P expects JP Morgan shares to remain under pressure until the environment improves, and thinks the likely lack of near-term improvement in JP Morgan's operating environment will keep earnings depressed.

Parametric Technology (PMTC ): Maintains 3 STARS (hold)

Analyst: Jonathan Rudy

Parametric expects December quarter revenues of $170 million to $175 million, below estimates, and an operating loss per share of two cents to four cents, below the Street's breakeven consensus. It has also filed for a 15-day extension with the SEC for filing its fiscal 2002 (Sept.) 10-K, in order to review the recognition timing of about $20 million in maintenance revenue. Parametric continues to be impacted by weakness among manufacturers. S&P is lowering the fiscal 2003 operating earnings per share estimate to two cent from eight cents. With shares at 0.7 times revenues, below peers, and over 80 cents in net cash per share, S&P would hold Parametric.

Abbott Laboratories (ABT ): Maintains 3 STARS (hold)

Analyst: Herman Saftlas

The FDA approved Abbott's Humira treatment for rheumatoid arthritis -- three months ahead of schedule. Roughly equivalent to Amgen's Enbrel and Johnson & Johnson's Remicade in terms of efficacy, Humira offers some advantage in convenience dosing. It is likely to be priced in-line with rivals, and sales may reach $700 million by 2005. However, heavy launch costs are likely to impact the first half 2003 earnings per share.

Abbott still faces generic threats to other drugs and is struggling with plant quality control issues. Its shares are valued at a modest discount to peers.

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